AIM not such a long shot

In 2011, a wave of Chinese stocks delisting from the Nasdaq market in the United States made London investors even more wary of Chinese stocks, resulting in a discount on their valuations based on a so-called "China risk". This has put pressure on London-based advisors to help their Chinese clients improve their corporate governance measures.

Alei Duan, managing director of the financial advisory firm Abridge Capital, says that his team works hard to make clients understand the importance of developing corporate governance practices acceptable to Western investors.

"This is a difficult process, because many small companies and especially family businesses follow the will of a key decision maker, so it is very difficult for them to change to the corporate governance structure of a public company where all decisions are made by a management board," he says.

As an investment advisory firm, Abridge helps Chinese clients set up a team of advisers to help them in the initial public offering process. This includes nominating advisers, who effectively regulate AIM-listed companies, brokers, lawyers, accountants and public relations specialists.

"Different advisers have specialties in different industries, therefore choosing the most suitable advisers is important," he says. "For example, mid-tier accountancy firms with the right experience in the Chinese market may be more suitable for AIM-listed companies than the Big Four accountancy firms."

Knowing the detailed assessment that investors carry out before investing in new companies, Duan has turned away several clients whom he believes to be unsuitable for IPOs in London at their current stages of development.

"If they go public, they will find it difficult to raise much capital, but at the same time they need to pay a lot of consultancy fees and listing fees, so we suggest they wait," he says.

Currently, many of the Chinese companies seeking listings in London are small and medium-sized firms which are frustrated by the long queue for a listing on China's domestic stock exchanges. This queue swelled to more than 800 last month, meaning some companies may have to wait for years to receive approval from Chinese regulators.

In comparison, companies only need to carry out an average of six to nine months' preparation before going public on AIM.

AIM is also attractive for growing Chinese SMEs because of its flexible rules, unlike China's domestic stock exchanges, which have track record requirements for IPO candidates, says Amanda Yao, a senior associate at Pinsent Masons, an international law firm. Such requirements often include years of operation, net income and market capitalization.

One company her team advised was Renesola, a solar-wafer manufacturer, which was admitted to the AIM in 2006. With an audited track record of less than one year, it did not satisfy the minimum requirements for listing on China's domestic stock market as well as many overseas stock exchanges.